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The American Psychologist Association revealed that 71 percent of Americans say money is the cause of the most stress in their life. That’s no surprise since over two-thirds of Americans live paycheck to paycheck. For many Americans, tax season is a time to celebrate — it feels like a windfall, and vacations are even planned around this “bonus money.” Of course, any refunds aren’t a bonus at all, but rather, Uncle Sam simply returning the interest-free loan taxpayers lent him for the past year.
The goal of tax season is to break even. You’re doing tax season right if you don’t owe. However, many Americans find themselves owing taxes year after year, unable to get that balance right. For this slice of the demographics, tax season is a time to dread and the peak of financial stress.
If you fall into the latter camp, here are a few ways to ease stress in April:
Start planning for next year’s taxes now
There’s little you can do to improve your tax situation now, but you can certainly start to prepare for next year early. Research and secure a financial professional who can help you with planning, quarterly taxes (if applicable), and who will make sure you make the most of available credits and deductions for the year’s filings.
Address your business structure
The taxing structure you elect will affect your taxes dramatically. When you form your business as an LLC, for example, unless you elect to be treated otherwise, you will be taxed as a sole proprietor and subject to self-employment taxes. If your business is profitable, it may be beneficial to elect to be taxed as an S Corporation. By doing this you save the additional 15.3% in self-employment taxes, but you are legally still an LLC. This allows you to save on taxes while keeping you from losing personal assets in the event that someone sues your company. Also, using an online formation service like ZenBusiness simplifies and streamlines the process while saving you money you’d otherwise pay an attorney for completing and filing the paperwork. Review your options to ensure your business structure is the right one for your circumstances.
Manage your business records
Another thing business owners need to do to make tax time less stressful — not to mention, keep their business running smoothly — is get their business records in order. Using the right software can help. Take payroll for example; some services include automated payroll generation and automated tax payments, time tracking, and keep your electronic records organized. And for your in-house records, it’s critical to create a filing system that keeps all of their receipts and other records of business expenses in order. Many of your expenditures will be tax deductible, which can reduce your tax liability and even net you a return.
Some people swear they perform better under a deadline, and it’s tempting to put off filing taxes until the last minute. However, procrastination can lead to nasty surprises such as a bigger payment than expected, the need to file an extension, and possibly missing the deadline entirely when you realize too late that you don’t have all the documents necessary to file.
Dig into deductions and credits
A reputable accounting professional is diligent and will find every possible deduction, write-off, and credit you may qualify for. However, if you’re not working with an accountant this year, or simply want to self-soothe by researching these items on your own, it can be a pacifying stress reducer. Not only will you learn more about how the tax system works, but you’ll be better prepared for next year.
Educate yourself about audits
Tax audits usually aren’t nearly as intimidating and scary as they sound. The vast majority occur via snail mail, and the IRS is usually requesting additional documentation. It’s very rare that there’s an in-person audit — and even rarer that the IRS will come to your home or business (those in-person meetings are usually held at a local IRS office).
Restructure how you think about tax refunds
Most people enjoyed a tax refund when they first started working because they were low-income with an entry-level job and probably didn’t properly claim their deductions. Stop thinking about refunds as a “bonus.” It’s better to get that money when you earn it, instead of signing up to give the IRS a free loan for a year. Unfortunately, the ‘tax refund as a bonus’ belief is built into our culture and psyche. If you are getting a refund this year, earmark those funds for a positive investment such as retirement, an emergency fund, or a child’s education.
Swap DIY or pop-up filing for a real accounting professional
There are endless options for filing, and a lot of people use an online service or depend on a local pop-up shop advertised with a sign spinner dressed up as Lady Liberty. However, the cost of a skilled accountant is actually pretty close to the cost of a pop-up filing shop. Professional accountants are more educated, experienced, and skilled at ensuring you get more of your money and reach your financial goals.
Stress reduction requires planning ahead and knowing yourself. Start prepping today for next year’s filings, and April will no longer be the most stressful month of the year.